Rebalancing of Policies Required to Build Canadian Prosperity

With the bounty of our land and the talent of our people, Canadians have the opportunity to enjoy the highest quality of life and standard of living on our planet. It is an opportunity missed.

On quality of life, we have fallen from first to sixth place over the last few years in the United Nations Human Development Index. Our health care system is failing. Canadians put their lives at risk queuing up for medical attention in one of the world’s most expensive and least efficient medical care systems.

As for our economic standard of living based on per capita GDP, we aren’t even in the top 10. Instead, over the last few years we’ve generally been around 13th, behind such once poor – in some cases, desperately poor – nations such as Ireland.

In our Canada Strong and Free series of papers, published by The Fraser Institute and the Montreal Economic Institute, we have challenged Canadians and our leaders to implement public policies designed to dramatically improve Canada’s economic and social performance.

Our most recent paper, Building Prosperity in a Canada Strong and Free, released earlier this week, examines how we can build increased prosperity in Canada. As in our other reports, we found a lack of balance in Canada’s policy structure.

In economic policy, government needs to balance on one hand its need to fund programs and provide a proper regulatory framework with, on the other hand, the right of Canadians to make their own economic decisions – in effect, to enjoy economic freedom.

The Fraser Institute publishes the Economic Freedom of the World Annual Report and heads the world economic freedom network which includes research institutes in more than 70 nations. The work has been examined in more than 200 academic and public policy articles. Economic freedom has been found to be a driver not just of increased economic growth but many other positive outcomes.

Canadians do not want politicians and bureaucrats making their economic decisions. Not only does that trespass on the economic rights of Canadians to make their own decisions, it is a recipe for suppressing the dynamism of the private sector and choking economic growth.

Government spending and taxation in Canada is equal to about 40 per cent of our economy. This is out of balance. We need to provide more room and freedom for our private sector to create prosperity and jobs.

International research indicates that the optimal size of government is between 20 per cent and 35 per cent of the economy. Government of this size spurs strong economic growth and the empirical research shows that it has no detrimental effect on the quality of government services or the quality of life. It simply forces government to spend your earnings more wisely, just as you do in your budget.

We recommend that Canada reduce the size of government to a third of our economy. We don’t need spending cuts to achieve this. It can be done by holding increases in total government spending to 0.9 per cent per year or less over the next five years. This would put almost $400 billion back in the pockets of Canadians. And, according to the research, it would increase the prosperity of individual Canadians and families even more by spurring economic growth.

Also based on international evidence of what works in spurring growth, we recommend a number of tax reforms: accelerating the elimination of all corporate capital taxes and capital gains taxes to encourage investment, reducing federal corporate income tax to 12 per cent from 21 per cent and ending the tax surcharge, and moving towards a single-rate personal income tax.

Our examination of the evidence leads us to believe that Canadians are over-regulated, another unnecessary restriction on our economic freedom. Worse, once a regulation is put on the books, it seems to become immortal.

We need to tackle these problems. Governments or interest groups that propose new regulatory restrictions on our freedom should be required to provide cost/benefit analysis of the proposed regulations; parliament and legislatures should hold regular de-regulation sessions to prune unnecessary regulation; and all regulations should carry a sunset clause so that out-moded regulations are not left on the books.

Any set of policies that prevents Canadians from trading with other Canadians is another unwarranted restriction on economic freedom. Yet, Canadians face many such barriers when they want to trade with each other.

In other volumes of Canada Strong and Free, we call for the federal government to respect provincial jurisdiction in areas such as health care. But, while Ottawa has undermined our constitutional division of powers in such areas, it has ignored its own constitutional authority and responsibility to ensure free trade among Canadians.

We recommend a reference to the Supreme Court to clarify the commerce clause of the Constitution which ought to allow Ottawa to strike down inter-provincial trade barriers. And we believe the federal government should use that power – strengthened by amendment if necessary – if efforts to persuade provinces to dismantle their barriers are unsuccessful.

It is possible to envision a Canada with the highest quality of life in the world, sustained by the best-performing economy in the world. It is possible to envision public policies that will make this vision a reality. So let’s get on with the job of implementing such policies now!